What To Expect From Under Armour’s Q1 Earnings

by Trefis Team
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Under Armour (NYSE:UA) is all set to report earnings for Q1 on Tuesday. The company has had a rather rough time over the past few quarters. North American sales have declined considerably over much of 2017 on changing consumer trends. In fact, towards the end of the year, the apparel giant recorded negative revenue growth in the region, which accounts for almost 75% of the company’s overall revenues and over 100% of its operating income. Further, the company was also crushed under stiff competition from sports apparel heavyweights like Adidas and Nike. We expect a similar situation to persist through much of 2018, as well.

In addition, the first half of the year, and especially Q1, is the slowest quarter for the company. It tends to make most of its EPS gains through the second half of the year. In this respect, analysts expect the company to report a loss of about $0.05 per share while revenues come in flat year over year.

  • As mentioned above, changing consumer trends has taken quite a toll on North American revenues since almost Q4 2016.  In the previous quarter, sales here fell by almost 4.5%. This was primarily attributable to bankruptcies, store closures, decreased productivity, and demand. Accordingly, we expect the overall top line to suffer on continuing weak revenues from the region.
  • Gross margins also took quite a hit as revenues suffered. To put this into perspective, the key metric fell by almost 140 basis points to 45% following declines of 130, 190 and 70 basis points in the third, second, and first quarter, respectively. In this respect, we expect the gross margins to be relatively flat through Q1 2018 and beyond.
  • Interest expenses have also jumped significantly over the last few quarters. In Q4 2017, this metric jumped to nearly $12 million, representing a near 20% increase year over year. Going forward, Under Armour expects to produce nearly $45 million in interest and other expenses over FY 2018, up from $38.2 million recorded in the previous year. This is expected to further take a toll on profits.

 

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